Today, the minutes of the September 20 meeting of the Federal Open Market Committee (FOMC) will be published. The text of the protocol is of interest from the point of view of the assessment of the financial risks that the u.s. economy might face in the process of tightening financial conditions. The policy of the strong dollar, which is implemented by the AMERICAN financial and political authorities has a number of dangerous consequences that the country’s economy could face if she is not totally ready for such cardinal steps. As a result, the level of the internal evaluation of the discussion from the point of view of risk can greatly affect the position of the dollar in the short term.
At present, the market is based on the fact that the rate will be raised again in December by a quarter of a percent. The probability of this event exceeds 90% as a function of the CME on the futures market data, while the next increase may take place in March, not in June, as has been done recently.
This morning, the head of the Federal Reserve Bank of Dallas, Robert Kaplan, said that the Fed need not wait for signs of inflation accelerating, while the world economy grew more quickly than expected», and delays can lead to the fact that, in the future, will have to raise rates at a faster pace. Kaplan, in fact, again repeated the same set of arguments, which are expressed from time to time by his colleagues, the us is moving towards full employment, inflation will increase in any way, the business climate and consumer confidence improve, and, therefore, the rates must be treated immediately.
Fears that the growth of the dollar index will lead to a deterioration of the already bad balance of trade, in fact, do not pose a serious problem. From July 2011 to December 2016, the trade, the weighted index of the dollar (TWI) has risen by 37%, and a significant increase, one could expect a deterioration in the trade. However, the ratio of the trade balance, the volume of trade, which, in general, has an inverse relationship among the DHT index, has changed quite insignificant during the same period, which indicates a weak dependence of the trade on the dollar index.
In other words, a strong dollar is unlikely to worsen the trade of the united states, but it will allow you to solve a number of other problems.
Apparently, the united states will be always to begin the implementation of the policy of the strong dollar, the recent statements of the members of the firm across all markets for this scenario.
On Thursday, the attention will be focused on the dynamics of producer prices in September, which is well ahead of data on consumer inflation. The Experts expect a slight increase in August, the publication of data in line with expectations, supporting the dollar.
Friday will be very saturated and can cause an increase in the volatility on the markets. At 13:30 London time, data on consumer prices and retail sales will be published in September. Retail is expected to show a growth of 0.4% after a 0.2% decline the previous month, and the rate of inflation will return to 2.0% after three months of weakness. A little later, will be published the preliminary Michigan index on consumer confidence, in addition, a number of representatives of the Fed will make comments.
The expectations themselves are very positive, and if the result is not the worst, the dollar by the end of the week can regain a dynamic growth, mainly against the commodity currencies. Markets from the fact that the scenario implemented by the Fed, and the Trumpet of the administration leads to a decrease in the demand for risky assets, which provides an opportunity to strengthen the yen, which could reduce the week to support 108.40 / 90 in the long term. The growth of the EUR/USD in recent days is corrective and limited to the resistance at 1.1880, after the decline may resume.